While the Economy Tanks, the President's Team Dawdles
There is no doubt about it. Barack Obama is an effective and inspiring president. His address to the Joint Session of Congress this week cheered all those who heard it.
His courtesy and respect for colleagues -- regardless of political affiliation or status is refreshing and will no doubt raise the overall standard of political and civic conduct.
His budget is honest, ambitious and fair.
On almost every day of his first 38 days in office he has taken firm, sometimes transformational action.
But in the most critical area, the economy, he is allowing his economic team to dawdle. That could be fatal to his presidency. Geithner, Summers and Bernanke are still lagging behind events. If he is not careful he, and they, will be overtaken by these events, and the U.S. could suffer the fate of Japan.
He needs to demonstrate a much sounder grasp of the colossal urgency of this crisis, and inject that urgency into the dawdling of his economic team. His advisors are schooled in Greenspan-style economics, and they are having to learn about intervention. While they gingerly climb this learning curve, the US economy continues to tank, the banks face systemic failure, companies are being bankrupted and unemployment is rocketing.
The impact on the global economy is incalculable.
America's total income (GDP) in the final three months of 2008 declined by nearly twice that expected -- by 6.2%. This is its worst performance since 1982.
The story of this collapse in output is the big story -- beside it, everything else, even Iraq, can wait.
While confidence in the president rises, consumer confidence has slumped.
Plenty of Americans would have been home, listening to the president's address to Congress. They had the time, because they are jobless. In fact in the third week of February, 36,000 more Americans lost their jobs than in the week before -- a record. Economists are predicting job losses rising to 1 million a month.
For these unemployed men and women, the euphoria of the speech will have quickly evaporated.
Consumer behavior and attitudes show that Americans do not really believe the president has a grip on this recession. They do not see it easing up in 2009, and reported record declines in their personal finances and prospects.
Each day provides evidence that the US economy is spinning downwards into a debt-deflationary abyss, not dissimilar from that experienced by Japan for 19 years now. An abyss into which is dumped rising and costly debts, falling wages, falling investment, and falling prices, including house-prices (still falling in Japan after 19 years!).
US house prices have fallen 19.2% year on year. In Phoenix they fell by 34% and in Las Vegas by 33% over the year. These are dramatic and unprecedented falls -- hurting the whole of the economy. And there seems no end to their declines.
As I have said before in this column, the high cost of borrowing and of servicing existing debts is crippling companies and forcing them into bankruptcy and layoffs. And it's not just risky companies that are facing this threat. Warren Buffet highlights the high borrowing costs that even a AAA company like Berkshire must pay:
"Funders that have access to any sort of government guarantee -- banks with FDIC-insured deposits, large entities with commercial paper now backed by the Federal reserve, and others who are using imaginative methods (or lobbying skills) to come under the government's umbrella - have money costs that are minimal. Conversely, highly-rated companies, such as Berkshire, are experiencing borrowing costs that, in relation to Treasury rates, are at record levels. Moreover, funds are abundant for the government-guaranteed borrower but often scarce for others, no matter how creditworthy they may be. ... Though Berkshire's credit is pristine -- we are one of only seven AAA corporations in the country -- our cost of borrowing is now far higher than competitors with shaky balance sheets but government backing."
At a time of the greatest debt crisis in history, these high borrowing costs are hurting companies like Berkshire and causing business bankruptcies and home foreclosures to balloon upwards. Each day inflicts more damage -- on the economy, on society, on families and on individuals. And each day the stock market shows its lack of patience with an administration prevaricating over the economy.
The Fed is the slouch here -- dragging its feet. Fed Governor Bernanke needs to urgently get all borrowing costs down -- for companies as well as households; for risky as well as safe loans. At this stage of the economic cycle, very few loans are without risk. And if businesses and entrepreneurs are to take the risks needed to pull us out of this crisis, they need affordable finance.
The Fed can get rates down by applying the policy of quantitative easing far more aggressively.
And then there are the banks. Collapsing banks can't wait while Treasury embarks on a painstaking and punctilious "stress test." The stock market knows what Treasury still needs to admit: the banks are bust. Their CEOs lack all credibility. Until they are nationalized the Dow will continue its very rational path downwards.
The point of temporary nationalization will not be to score political points, or embrace so-called European-style socialism. The point of temporary nationalization will be to stabilize the banking system (and the stock market) and bring about a blanket reduction in borrowing costs -- for all borrowers.
The point will be to prevent the United States economy failing like Japan has done for 19 years now.
The economy cannot wait for the president's patient building of bipartisan agreement. Those congressmen and women that cannot grasp the gravity of this crisis need to be sidelined.
Millions of unemployed Americans can't wait while Ben Bernanke, Tim Geithner and Larry Summers learn from the mistakes made by Japan in the 1990s.
Millions of homeowners can't wait till economists unlearn the dogmatic and misguided theories of Ayn Rand, Milton Friedman and Paul A. Samuelson.
The president must not allow himself to be slowed down by the timidity of his current economic team. If they don't stop dawdling, he should take over the reins and get himself a new team.
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"Those congressmen and women that cannot grasp the gravity of this crisis need to be sidelined. "
President Obama (Mr. Obama), stated that the ground had shifted underneath people and they had better clue in to this fact. These are strange days indeed, and perhaps the old approach, the solitude of the box will not suffice this time. Think outside the box, but how are you going to do that with no recognition of the square geometry of an insular cardboard approach of vacuity?
President Obama will be transformational because the times will deem it so...as they did for Lincoln (he did not come warm to abolition, no matter the revisionism -- but he did arrive). The times are in control and people are being shaped by the times. Policy will flow from the true stimulus of all economies -- and that is pain...not necessarily a recovery bill. People say necessity is the mother, well pain (fear of pain) is the father in any birth of transcendence, innovation, emergence from the depths, or reversal of a spiral downward. Pain will lead the way, and a transformative President will emerge along with a transformed society. Sex is friction, therefore impregnation is friction. The give and take, the conflict, the back and forth of now is to be expected as we usher in a new society from the ashes of the old. Limbaugh and general GOP obstructionism is part of the mix of friction required for rebirth of a nation.
Excellent post. To this I add we must all now know the sorry financial history of the United States.
WE HAVE ALL BEEN HERE BEFORE IN 1912.
Maybe we will learn something this time?
http://yamaguchy.netfirms.com/7897401/lindbergh/lindb_index.html
IDEOLOGUES AND THE ENRONIZATION OF THE U.S. ECONOMY
http://www.youtube.com/watch?v=wx3KMX6T8bo
ELLEN BROWN on 09/20/08 !!!
http://www.countercurrents.org/brown200908.htm
ELLEN BROWN's original analysis is being 100% confirmed now seven months later.
http://www.villagevoice.com/2009-01-28/news/what-cooked-the-world-s-economy/1
http://www.drudge.com/news/118540/tpm-understanding-aig-and-money
BUSHCO HAD ONE YEAR TO PREPARE - AND DID ABSOLUTELY NOTHING
http://www.minyanville.com/articles//2/11/2008/index/a/15847
ELLEN BROWN VIDEOS ON THE EVENTUAL SOLUTION - Nationalize the Federal Reserve
http://www.youtube.com/watch?v=QU0XiklHPMc
It is uncanny how strong the resemblance between Geithner and Obama and Lincoln and McClellan is. Both presidents were so anxious about making mistakes in things they felt themselves inexperienced in that they mistakenly relied on supposed experts who were simply apt pupils of the established orthodoxy. The only questions is whether Obama will stall out as long as Lincoln did.
Where is the detailed plan to solve the banking crisis, Mr. President?
Let's just bail out AIG for the fourth time. I'm sure that will help Americans pay their bills and buy groceries.
Can anyone explain to me why Bernanke is still there? Don't tell me that President Obama can't replace him.
President Obama can't replace him until his term ends a couple years hence.
You bring up Japan, the banks there are government run, their policys to pick and choose where to support business via loans has been a failure. that is the danger of nationalization of banks. There is only so much money to loan. do you loan it to Boone Pickens to install wind turbines ? Al Gore to plant trees in the midwest for carbon credits? Obamas dream and the American dream are on a collision course. we need to kick start real money making businesses. manufacturing regulation such as his carbon cap tax and the high cost of energy that these carbon taxes will cause will only drive factorys elsewhere. we have to continue to be an industrialized country to prosper. Obamas cant let a crisis go to waste policy should scare the crap out of anyone who values the financial health of our country.
Reading the posts - each one is different like a snowflake - illustrate that part of the problem is that because the situation is so unusual and rapidly developing that its hard to get a handle on what the response should be.
Hard, yes, but necessary. Nationalization to quickly restructure then re-privatize is clearly essential. I've thought it would be since last Fall, but I think the fact that really the banking sector is not doing anything pending government action has now make it essential since the crisis is deepening so rapidly.
I think the administration is dallying on nationalization b/c they are trying to avoid looking socialist, and b/c they are afraid it will be challenging to manage the process, which it will be. Both of these are risks, but they are nothing compared to the growing urgency of this criis.
Pettifor is right. No other issue compares to this. Our risk of an actual depression and an even worse decade than Japan had in the 90s is real and growing rapidly. Obama needs to act now.
All of these companies must FAIL. This administration's shill economic team are going to pull The President's approval numbers down very quickly. Rightly so I must add.
The bankds and insurance companies "did the deed, they need to pay the price", not USA citizens.
Especially the big five that were not banks to begin with. What the hell is an Insurance Group doing buying up banks in order to get FDIC coverage in the first place? Lehman, Chase, Morgan Stanley, AIG, Bank Of America ALL need to be gutted and have their assets seized. Their top officers should face the same treatment.
BTW, why haven't mortgage rates gone down with the prime? THAT would make refinancing, with NO fees, the solution to a lot of these 'bad mortgages'. Stop trying to fix the problem where it ain't. Get people able to pay on those mortgages again and the problem solves itself!
I think they dont want to do it b/c it is a really bad idea.
The last time we nationalized a large bank it took over seven years to complete.
There were only five major banks in Japan which were already pseudo nationalized with no other banks to pick up the slack.
Sweden’s banks where the size of Maine. Not a global entity.
When we let the first large bank go under Lehman Brothers, confidence turned to panic all over the world and a bank run almost collapse the entire system into the stone age.
Nationalization will not help restart the economy.
They are unrelated. Jobs and consumer confidence are the most important elements to a strong economy.
To categorize as dawdling the massive and broad and rapid undertakings of this admin is far off base. The problems are immense, and in that light the government's announced programs are impressive. Attempted solutions to enormous problems are not to be solved by shooting from the hip. Anyone involved in trying to evolve a corrective strategy to systemic, wide-ranging, critical problems knows that it is extremely difficult and does take some time for the best approach. Dawdling does not apply in this case.
Of course NOT! I have never heard of this lady PUNDIT> She talks like she is smarter than Obama, Summers etc/ Let us see her run for Presidet next time. It is an enormous challenge for all in responsible positions to do the right thing, the best and fastest way, they can ,IN SPITE OF the anti Obama republicans, who are happy to see this man fail! WE hope more people come to support the democratic party and their efforts to solve huge problems, and let us get a veto proof congressin 2010, and let us try to RECOVER from the abyss. It is so easy to stand by and criticize, Jumpin see see how strong the current, and how cold the water!
WRONG. The best economic brains NEVER thought giving money to banks would solve the problem, and it will not.
the Boards and CEOs did not make the stock holders their first priority
stock holders lost it all
therefore the stock holder should seize all the assets of the Board Members and CEO
The US GOV. should let the banks go bust, sell off what they can and start a new bank, The People's Banks of the US and/or encourage the American People to use credit unions
People should get their money OUT OF BANKS and put the money into credit unions.
Maybe in your country that might be true, but the reverse applies here.
The problem is way way more complex than all you suggest Ann. The problem is economics ... as a way to live. Finally--as predicted by some--capitalism has come to an end. Sure we are baffled as to what should replace it. Actually nothing should replace it. It, (whatever "it" is) needs to just disappear. Big words? yeah and a frightening prospect, yeah,
If we take that risk we could be very surprised how it all pans out. My suggestion:- we need to learn to co-operate--not compete. Economics and money, by virtue of their existence are competitive. We are one creature on one planet and unless (real quickly) we seek another modality we are not going to have a planet: let alone a human species.
exactly.......resources are limited.......the ecosystem is fragile....our systems are not in harmony.....our very survival depends on immediate strategic planning and cooperation in our "global village".......a continuation of current practices will result in our only escape being somewhere else......in deep space
Amen, Ann. And amen again. Geithner was not supposed to be introduced as the invisible man. Rome. Nero. Fiddles. Burning. Baloney.
The article is far too generous where Obama's economic team is concerned. The team he has assembled is part of the problem, not part of the solution. Geitner in particular was a horrible choice for treasury. As Fed chair in NY he was completely blind to the events unfolding, and is widely believed to be in bed with the bankers. This is we have not seen nationalization of the banks to date. Geitner is still trying to protect his wall street cronies. Its the american taxpayer that will ultimately suffer as a result.
The government should post what the stress test factors are and how quickly/slowly they would take to go through. They should list the criteria of what gets an institution looked at, in the first wave of stress testing. They are not being very transparent. Information calms things down when there is a plan. If you know the plan and even if we only hear about one bank every couple of days then that is better than what we have now.
They need to move faster, and use that "scalpel' the President talked about in his campaign. They need to save the banking system not a particular bank(s). Send in the FDIC they are very capable of reprivatizing a bank and or liquidating it if mouth to mouth resuscitation isn't a possiblity . They also need to change the way they are going about the mortgage problem by not inventing the wheel again and just using FDR's program HOLC or Dr. Roubini's name HOME.
I think it was Jefferson who said "To delay is better than to err.".
We have a giant stimulus package which few have even read, and so many proposals to give money away that many people have stopped doing anything for fear the government will make it cheaper in a few weeks. Think about the proposals to provide $x thousand in credits to car buyers. Would you buy a car tomorrow if you thought the government would give back $3,000 on purchases in June?
Anna Eschoo is proposing a cap on interest rates for credit cards no matter what the risk profile of the holder is....isn't that how we got here...by government's insistance that banks loan to people who they wouldn't otherwise have loaned to?
Whoa.......let's think a bit.
Of course, Jefferson eventually completely blew that out of the water when offered the Louisiana Purchase.
Although I have my complaints about the stimulus package, I doubt that by itself it discouraged economic activity. The credit crunch and job anxieties had already done quite a number on the markets. At most, the stimulus failed to reassure people because it didn't address the fundamental issue, credit confidence.
Also, that bit about government leaning on banks to make bad loans is just a right wing talking point. Pretty much all the professionals agree that securities packaging, separating the loan from the original lender, is what drove the subprime situation. As long as credit card companies don't bundle and resell their debtors, Eshoo's bill should have the desired effect.
President Obama is listening to all the wrong people. I have been trying to get in touch with him since way before he was elected but You can't get past his ignorant staff. All his advisors are either up to their necks in our problems or sat back while all the bad was happening saying nothing. It the economists he is letting him advise him were any good they would have seen all the bad coming. Most were out there saying how great our economy was and how wonderful our free markets and wall street were. Yet these are the people who are supposed to know how to fix things. There are things he could have done that would have already started turning things around but he will never know of them because they won't let him. Yes we can! but we won't not because of him but the people underneath him.
There is no such thing as Free Markets. It is a theoretical definition used in teaching basics of supply and demand. It is used to teach supply and demand and the definition is takes out the effects of governments and laws on the math side of things. Free Markets can not exsist as long as there are Governments any where in the world. The only person I know that has been walking around talking about free markets is Senator McCain and he admits not knowing much about economics. Roubini forcasted this catastrophe around 2006. They gave him the nick name of Dr. Doom, well the Dr. was right and he has a way of getting out of this.
The president can always use a Presidential Directive to say Reset all of these failing mortgages at 3% above the Fed Rate not to go below 4.5%, forgive all penalties to date 1/2 of which are illegal anyway, and buy up the differential between the capitalized first mortgage and current value of the house, that would cost around $200 billion...and save Tax Payers billions and keep millions of Americans in there homes, and some less deserving as well admittedly but we must address why these bundles are toxic and this will do that...like treating the cancer cell directly...
It's a "silver bullet" and we need a silver bullet to address the foreclosures something across the board that is done all at once..
We needed a much bigger Stimulus all along as so many said and this one largely wasted over 40% on Tax Cuts rather than spending...!
I was with you up to the spending, spending is what got the government and the people where they are today..tax cuts are OK but not on a day to day basis one could starve.. This whole situation isn't rocket science.. If the toxic loans were the WHOLE problem, the cure would have been as simple as you stated with the home loans, which would mean our government is a bunch of dummies since they put the money into the banks when it would have been CHEAPER and more efficient to either buy the loans or give a stimulus check to the people and let them pay off their houses making the bank notes flush now the money is in the bank, the banks have no more toxic debit and the people would own their houses. No this housing thing while a big deal ISN'T but 1/4 of the story and we are not hearing the rest of it.. All of a sudden this is a Global problem. Lets all put on our thinking caps and think, who, would benefit from everyone being in the same boat at the same time? Wall street was a diversion, the housing that could simply be fixed at 1/4 the cost of what they are spending is NOT being addresses and we are still spending stuffing banks with money making a slave generation out of our kids.. Well maybe the One world government will be in place by then..
I also would write down ALL mortgages by one half and let the bankers eat it. If they go bust, too bad.
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